This paper uses low frequency end-monthly data on the Nikkei stock market index and business cycle variables in Japan to examine the important determinants of variations in the volatility in the Nikkei stock market index.

Recent evidence from Fama and French (1992, 1996) and others shows that betas and returns are not related empirically. They interpret this as evidence against the validity of the capital asset pricing model and conclude that the beta is not a good measure of risk. This paper claims that usual...